Franchising in Taiwan: Managing Outsourced Recruitment and Preventing Unauthorised Promises

When expanding an existing business into a franchise network in Taiwan, head office may appoint consultants, regional agents or brand partners to approach prospective franchisees. Outsourcing can broaden your reach, but it can also lead to agents making promises that head office later refuses to honour. Effective management means more than simply telling agents not to make unauthorised statements: every commitment needs proper authorisation, a record and a verification process.

1. Recruitment can be outsourced, but statutory responsibility cannot simply be transferred by contract

Taiwan has no single franchise-specific statute. However, the Taiwan Fair Trade Commission’s Guidelines on the Business Practices of Franchisors operate alongside the Fair Trade Act to regulate franchise recruitment. Concealing material information may breach Article 25 of the Fair Trade Act if the conduct meets the relevant criteria, including being obviously unfair and capable of affecting trading order. Contractual disputes and disputes over an agent’s authority also involve the Civil Code.

Even where another company recruits under a brand licensing arrangement, the franchisor must still fulfil its obligation to disclose material information if the arrangement constitutes a franchise relationship in practice. An agreement between head office and an agent about who sends the documents does not automatically transfer responsibility towards prospective franchisees.

Before making an appointment, establish who will be a party to the franchise agreement, who will provide operational guidance, who will collect fees, and who will provide the material franchise information and retain evidence of its delivery.

2. Set out the agent’s authority in an accessible list

Do not simply state in the agency agreement that the agent is ‘responsible for recruitment’. Divide activities into three categories: those the agent may carry out directly, those requiring head office approval, and those the agent must not undertake independently. For example:

• Permitted without further approval: presenting approved franchise packages, arranging visits and collecting application information.
• Prior approval required: individual fee discounts, additional support and special conditions for opening an outlet.
• Not permitted independently: guaranteeing profits, promising unapproved exclusive territories, amending contracts on head office’s behalf or asking for payments into a personal bank account.

Also give prospective franchisees the agent’s identity, scope of authority and a contact at head office who can confirm commitments. Internal restrictions alone may not eliminate the legal risks arising from an agent’s dealings with third parties. Business cards, emails and the way agents introduce themselves should also be consistent with their authority.

3. Establish procedures for referring questions and verifying promises

If an agent receives a question that the standard materials do not cover, they should record the original question and refer it to a designated person at head office, rather than estimate an answer from experience. This is particularly important for questions about opening costs, mandatory purchasing arrangements, operational support and outlet expansion plans. A vague assurance such as ‘that is usually possible’ is no substitute for a specific explanation.

Keep records of conversations, presentations, quotations and head office approvals for each prospective franchisee. Before proceeding to signing, head office should ask the prospect directly: ‘Has anyone promised you any benefits, income or support beyond what is set out in the documents?’ If discrepancies emerge, verify them and clarify the position in writing before deciding whether to proceed.

This verification cannot be replaced by a blanket statement that ‘all verbal promises are invalid’. Nor should a prospective franchisee be asked to sign an acknowledgement that does not reflect the facts.

4. Make a compliant handover a condition of the agent’s remuneration

An agent’s handover should include more than a name and telephone number. It should also cover the information already provided, outstanding questions and any special terms. Head office should make complete handovers, verification of promises and co-operation with complaints handling part of its remuneration assessment, rather than rewarding recruitment solely on how quickly payments are collected.

As a general rule, material information must be provided ten days before a franchise or preliminary franchise relationship is entered into. The Guidelines also provide for a reasonable period determined according to the circumstances of an individual case, or a period agreed by both parties. There is a separate requirement for a contract review period of at least five days, or a period considered reasonable in the circumstances of the case. A single briefing by an agent should not be treated as completing the entire process.

Practical takeaway: Before outsourcing recruitment, prepare a list of authorised activities, designate a head office contact for responses and create a case handover form. Making sure prospective franchisees know who can promise what does more to protect trust in the franchise network than pursuing an agent’s liability after the deal is done.